Wiser! Essay: Facebook start trials of digital wallet Novi using the crypto stablecoin Pax Dollar. Meanwhile, rumours abound that Facebook is to rename to reflect its strategy for the Metaverse.
As I was about to publish this week's essay on the Metaverse for Premium Members, rumours surfaced that Facebook is about to rename itself. To reflect its new focus on the Metaverse.
If it happens, this would be huge news for the social media platform that is used by over a third of the world's population every month. However, it would also not be surprising. In the Forbes' Most Valuable Brands report, Facebook tops the list of biggest losers with a 21% decline in value from 2019 to 2020.
The scrutiny on its business practices, advertising business model and failure to act on its own research is only going to get harder for Mark Zuckerberg and Team Facebook. (Read this issue of Wiser! for more.)
It is no secret that the Facebook strategy is to realign to the Metaverse and move away from being purely a social media company with an advertising business model. In an address to Facebook employees in June, Mark Zuckerberg said,
“Our overarching goal across all of these initiatives is to help bring the metaverse to life.” Mark Zuckerberg, CEO, Facebook
Novi, Facebook's digital wallet
A key component of Zuckerberg's Metaverse strategy is a digital wallet. This would allow users to move units of value around the Facebook network instantly and at zero cost. Users would be able to send and spend digital money using the Novi wallet.
This week, Facebook announced that it was starting user trials of Novi in the US and Guatemala. The focus is remittances. This is where overseas workers send money back home to their families. (I wrote a 10-min essay on it here.)
In a tweet thread from David Marcus, the head of Novi, he talked about the importance of remittances for financial inclusion and the role of Novi is addressing the issue of unbanked nationals.
Facebook has chosen Guatemala for the trial because 14% of the nation's GDP comes from remittances, with around 90% of this money coming from the US. And despite almost everyone in Guatemala having a mobile phone, over half of the population do not have access to financial services.
Which means that they pay a substantial cost just to get their hands on the money sent home.
Crypto, Stablecoins and Coinbase
For the Novi trial, Facebook is going to use a stablecoin called the Pax Dollar (USDP). A stablecoin is a cryptocurrency designed to remove the volatility in crypto by pegging it to a fiat currency, in this case, the US Dollar.
This means that every Pax Dollar is worth one US Dollar.
Moving money around using cryptocurrency is instant and carries no cost. So, if you wanted to send $100 from the US to Guatemala conventionally, it would cost you 8-15% in fees and take several days. But with Faceb00k, you could load your $100 onto the Novi wallet, convert it to Pax Dollars, attach it to a WhatsApp message and send it to whoever you want to send it to.
On the other end, they receive the Pax Dollars in a WhatsApp message instantly and for free. They can keep the Pax Dollars in the wallet as Pax, to spend within the Facebook ecosystem or send them to someone else. Or convert them back to $100, whatever currency they chose that is supported by Novi.
As part of the Novi trial, Facebook announced that it is going to be run in partnership with Coinbase, which will provide the custody services. What this means is that the funds will not actually be held in the wallet itself, but will be held by Coinbase, a qualified custodian and cryptocurrency exchange.
Facebook are also at pains to explain that they still plan to launch their own digital currency, to be called "diem". More to come on that in a future post.
Facebook's world domination strategy
Given the sheer scale of Facebook's reach, if they were to succeed in making Novi the digital wallet of choice, over a third of the world's population would be able to operate without a traditional bank.
But remittances are just part of the story. Because a key component of the Metaverse is cryptocurrency. In building a digital wallet, Facebook have created the mechanism for trading and eCommerce in this new world that combines a physical and virtual Internet into a mixed reality experience.
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